SINGAPORE: The Singapore economy grew 3.6 per cent last year, faster than initial estimates of 3.5 per cent, according to data released by the Ministry of Trade and Industry (MTI) on Wednesday (Feb 14).

That is faster than 2016’s 2.4 per cent growth and marks the Republic’s fastest growth since 2014, helped largely by a strong performance in the manufacturing sector.

For the final three months of 2017, gross domestic product (GDP) expanded by 3.6 per cent from a year earlier, easing from the 5.5 per cent rise in the third quarter but quicker than the Government’s earlier estimate of 3.1 per cent growth for the fourth quarter.

On a quarter-on-quarter seasonally adjusted basis, the economy grew by 2.1 per cent in the fourth quarter. This compared with the 2.8 per cent initially expected and 11.2 per cent growth during the July to September period.

The manufacturing sector, which makes up one-fifth of the economy, was the standout performer last year though growth saw a slowdown in the fourth quarter due partly to base effects. For 2017, the sector expanded by 10.1 per cent, an acceleration from 2016’s 3.7 per cent, with growth largely driven by the electronics and precision engineering clusters.

Accounting for about two-thirds of the economy, the services sector also quickened its pace of growth to 2.8 per cent last year, from 1.4 per cent in 2016. Growth was mainly supported by the finance and insurance, wholesale and retail trade, as well as transportation and storage sectors.

By contrast, the construction sector shrank by 8.4 per cent, a reversal of the 1.9 per cent growth in 2016. Output in the sector was primarily weighed down by the weakness in private sector construction works, which contracted by 29.1 per cent on the back of a decline in private residential and private industrial works.

2017 also reaped a “strong pick-up” in overall labour productivity, which grew by 4.5 per cent last year, said MTI's permanent secretary Loh Khum Yean.

The productivity gains, highest since 2010 and a significant improvement from 2016’s 1.8 per cent, were “in line with the cyclical upswing”, he added.

2018 GROWTH TO MODERATE BUT REMAIN FIRM

For 2018, official estimates tip GDP to come in slightly above the middle of the forecast range of 1.5 to 3.5 per cent, barring the materialisation of any downside risks.

While the outlook for global growth has improved slightly since last November, growth in most of Singapore’s key final demand markets, such as the Eurozone, Japan and ASEAN-5, is projected to moderate or remain unchanged in 2018, according to MTI.

“On balance, the external demand outlook for Singapore is expected to be slightly weaker in 2018 as compared to 2017,” its report said.

Meanwhile, some downside risks remain even though global macroeconomic risks may have “receded to some extent”, MTI added.

Apart from lingering concerns over protectionist sentiments and in particular, the US administration’s trade policies, an upside surprise in inflation could cause monetary policy in the US to normalise faster than expected.

This could in turn cause global financial conditions to tighten more than anticipated and potentially lead to sharp corrections in financial markets.

“Should this occur, regional economies with elevated debt levels could be disproportionately affected, and there could be some pullback in investment and consumption growth in these economies,” wrote MTI in the report.

Against this external backdrop, the pace of growth in the Singapore economy is expected to moderate this year but remain firm.

MTI expects the manufacturing sector to continue to expand and provide support to overall growth, with the electronics and precision engineering clusters projected to “sustain a healthy, though more moderate, pace of growth” on the back of robust global demand.

Externally-oriented services sectors such as finance and insurance, transportation and storage and wholesale trade are also expected to benefit from firm external demand, although their pace of growth is also likely to ease in 2018.

Economic growth is expected to broaden to domestically-oriented services sectors like retail and food services on the back of improving consumer sentiments amid an ongoing recovery in the labour market.

Others like the information and communications and education, health and social services sectors are also expected to remain resilient.

However, the construction sector is likely to stay lacklustre in 2018 due to weak construction demand, particularly from the private sector.

The outlook for the marine and offshore engineering segment is also expected to remain challenging, MTI said.

MARKET VOLATILITY HAS LIMITED SPILLOVER EFFECT ON GROWTH: MAS

In light of the recent global equity rout, Ms Jacqueline Loh, deputy managing director of the Monetary Authority of Singapore (MAS), told reporters that the rise in market volatility "will not materially impact the global economy's growth for now".

In Singapore, while local trading volumes and prices could sway in the short term, the spill-over impact on economic growth should be "limited" amid growing economic activity, she added.

Ms Loh also said that the central bank has not changed its forecast ranges for core and headline inflation, and its "monetary policy stance remains".

The MAS kept its neutral policy stance unchanged at the monetary policy meeting last October though solid growth has bolstered expectations for the central bank to tighten monetary policy this year.

Coupled with potential tax hikes that could be unveiled in next week’s Budget, the central bank could move “earlier rather than later”, said Ms Selena Ling, head of treasury research and strategy at OCBC Bank.

“A stronger domestic growth outlook, coupled with a possible GST (Goods and Services Tax) hike, may accelerate inflationary expectations and warrant the MAS potentially tweaking its monetary policy settings from its currently neutral stance to a slightly appreciation bias at some point this year, possibly earlier rather than later as other Asian central banks like BOK (Bank of Korea) and BNM (Bank Negara) have already started pre-emptive policy normalisation.”

ANZ economists Eugenia Fabon Victorino and Sanjay Mathur expect the MAS to exit its neutral stance only in October.

“Economic activity is still lacking in breadth to engender inflationary pressures,” they wrote in a note, while adding that they expect inflation to remain soft in the first half of 2018.

“This should allow the MAS to maintain its neutral stance until domestic demand sufficiently recovers.”

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